- ECONOMIC POLICY
CONSISTS of MONETARY POLICY and
FISCAL POLICY.
The objective of MACRO - ECONOMIC policy is to
have sustainable GDP GROWTH while containing
INFLATION and achieving an acceptable rate of
UNEMPLOYMENT.

The fact that GDP rises or falls shows that BUSINESS
CYCLES are unavoidable and MACRO-ECONOMIC
policy can never really conquer them.

GDP GROWTH. Country's annual output and
of good & services. Same as economic growth.
UNEMPLOYMENT. The number of people of
working age without a job as a percentage of
the workforce.
INFLATION. Rising prices across the board.
Monetarists ( Milton Friedman) believed it is a
monetary phenomena. To stabilize prices the
rate of growth of money supply needs to be
carefully controlled.

GDP can be calculated by adding the total valueof a
countrys annual OUTPUT of goods & services.

GDP. = C + G

+ I

Consumption
(Consumer) Government

+

(X -M).

Exports

spending
Business
Investment

Imports.


GDP UNEMPLOYMENT
purchasing power INFLATION

‗PHILLIPS CURVE‘. There is a trade off
between INFLATION and
UNEMPLOYMENT.
The lower the UNEMPLOYMENT RATE
the higher is the INFLATION RATE.
Governments have to choose between the
two evils.

Too

much GDP growth will cause an
increased rate of inflation called
overheating in the economy. (e.g.
concern in China in 2006 & 2007)
which can lead to a recession and a hard
landing.

FISCAL POLICY
One

of 2 instruments of
Macroeconomic policy.
FISCAL POLICY comprises
TAXATION and PUBLIC SPENDING.
 is used to influence the level of
It
DEMAND in the economy with the goals
of getting UNEMPLOYMENT as low as
possible without excessive INFLATION.

FISCAL POLICY is targeted on long term goals. MONETARY POLICY is used for short-term adjustments.

 TAXATION may be a bad thing.
Necessary to pay for public and social
services. Also defense.

BUDGET. An annual procedure to decide
how much PUBLIC SPENDING there
should be in the year ahead. And what mix
of TAXATION and government borrowing
should finance it ?
These are the question‘s which the budget
seeks to answer.

Fiscal Deficit is one of the main cause of
high inflation rate in Pakistan. Reasons
behind Fiscal Deficit:
1.Low Tax / GDP ratio. Narrow tax base.
2.Wasteful government expenditure.
3.Protection and favorable treatment to
special interest groups.

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Answer:-
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Open market operations
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Discount rate...